Credit Derivatives with Multiple Debt Issues

39 Pages Posted: 22 Nov 2001

See all articles by Georges Hübner

Georges Hübner

HEC Liège

Pascal Francois

HEC Montreal - Department of Finance

Date Written: November 13, 2001


We extend the class of structural models of credit derivatives by allowing for multiple debt issues. Since firms default on all of their obligations, total debt is instrumental in the likelihood of default and therefore in credit derivatives valuation. We use a mono-factor interest rate model where the exponential default frontier is based on total debt and is made coherent with observed bond prices. Analytical formulae are derived for credit default swaps, total return swaps (both fixed-for-fixed and fixed-for-floating), and credit risk options. Simulations document that credit derivatives prices are affected in a non-trivial way by terms of debt other than those of the reference obligation.

Keywords: credit derivatives, credit risk, structural model

JEL Classification: G12, G13

Suggested Citation

Hübner, Georges and Francois, Pascal, Credit Derivatives with Multiple Debt Issues (November 13, 2001). Available at SSRN: or

Georges Hübner

HEC Liège ( email )

Rue Louvrex 14, Bldg. N1
Liege, 4000
+32 42327428 (Phone)

Pascal Francois (Contact Author)

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
514-340-7743 (Phone)
514-340-5632 (Fax)

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